The Chartered Institute of Personnel and Development’s (CIPD) latest Employee Outlook survey, published in autumn 2013, found just 36% of employees were positively engaged at work and one in four of them are looking for a new job. With 38% of them reporting that their employer still has a pay freeze in place, and the latest national inflation statistics showing a staggering 2.5% cut in real earnings over the past 12 months, you might not find the lamentable lack of employee engagement surprising.

Yet as Peter Reilly, director of HR research and consultancy at the Institute for Employment Studies, and I point out in our article Reward and engagement: the new realities, published in September 2013, there is a tendency in the wider HR community to downplay the role of reward in generating engagement.

The authors of the government-sponsored initiative Engaging for success are specific that engagement is ”the key to unlocking productivity”, but also that ”pay and conditions are important in attracting people, but subsequently act as more of a hygiene factor”. For them, the four key ‘enablers’ of employee engagement are leadership, managers, voice/involvement and integrity. The CIPD takes a similar stance.

Yet Aon Hewitt’s Total rewards survey: transforming potential into value, published in 2012, suggests that higher-performing organisations, with leading levels of engagement, are significantly more likely to have declared total reward strategies than the rest. Our new study Engagement outliers, published in October 2013, shows organisations that have managed to significantly increase employee engagement levels over the past two years find they have ”fixed the basics” of their pay and benefits, recognition and performance management infrastructure, resulting in major improvements.

Aon Hewitt’s engagement database shows that pay has risen in relative importance during the recession to become the third most important explanatory driver of employee engagement levels in Europe. In the best-performing organisations, employees have far better perceptions of the fairness and competitiveness of their reward.

I have been working with one bank whose latest staff survey found comparatively low levels of engagement. We found that the bank’s reward spend was not being fully optimised. Only one-third of employees had positive perceptions of their reward, despite the generally market-competitive package.

The bank is now undertaking a major programme of reforms, including greater consistency in the design of its pay structure, improved reward for high performers, and a restructuring of its benefits package.

The links between reward and engagement are not straightforward, but they are important. The weighting on each aspect of reward required to maximise engagement levels varies according to the organisation’s goals, culture, and a host of other variables.

That is why our expertise as reward and benefits professionals working to maximise those links is so vital to organisational performance.

Twitter: @duncanbhr

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